Stern Review

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Sir Nicholas Stern, author of the report.

The Stern Review on the Economics of Climate Change, is a 700-page report released on October 30, 2006 by economist Sir Nicholas Stern for the British government, which discusses the effect of climate change and global warming on the world economy. Although not the first economic report on global warming, it is significant as the largest and most widely known and discussed report of its kind.^[1]

Its main conclusions are that one percent of global GDP is required to be invested a year in order to mitigate the effects of climate change, and that failure to do so could risk global GDP being up to twenty percent lower than it otherwise might be.

Stern’s report^[2] suggests that climate change threatens to be the greatest and widest-ranging market failure ever seen, and it provides prescriptions including environmental taxes to minimize the economic and social disruptions. He stated that "our actions over the coming few decades could create risks of major disruption to economic and social activity, later in this century and in the next, on a scale similar to those associated with the great wars and the economic depression of the first half of the 20th century."^[3]^[4]

1 Positive response
2 Critical response
3 References
4 See also
5 External links
- 5.1 In the media

[edit] Positive response

The Review attracted a great deal of positive attention. Pia Hansen, a European Commission Spokeswoman, said doing nothing is not an option, "we must act now".^[5] Simon Retallack of the UK think tank IPPR said "This [Review] removes the last refuge of the 'do-nothing' approach on climate change, particularly in the US."^[5] Tom Delay of The Carbon Trust said "The Review offers a huge business opportunity."^[5] Richard Lambert, Director General of the Confederation of British Industry, said that a global system of carbon trading is "urgently needed".^[5] Charlie Kronick of Greenpeace said "Now the government must act and, among other things, invest in efficient decentralised power stations and tackle the growth of aviation."^[5]

Miles Templeman, Director-General of the Institute of Directors, said: “Without countries, like the US, China or India, making decisive commitments, UK competitiveness will undoubtedly suffer if we act alone. This would be bad for business, bad for the economy and ultimately bad for our climate.”^{[citation needed]}

Asset managers F&C look to the business opportunities and say "this is an unprecedented opportunity to generate real value for our clients"^{[citation needed]}

Brendan Barber, General Secretary of the Trades Union Congress, was optimistic about the opportunities for industry to meet demands created by investment in technology to combat climate change.^{[citation needed]}

The Prince of Wales’ Corporate Leaders Group on Climate Change, formed by 14 of UK’s leading companies shared this hope. Chairman of Shell UK, James Smith, expressed the hope of the group that business and Government would discuss how Britain could obtain “first mover advantage” in what he described as “massive new global markets.”^{[citation needed]}

On November 1, Australian Prime Minister, John Howard, responded by announcing that AU$60 million would be allotted to projects to help cut greenhouse gas emissions [1] while reiterating that Australia would not ratify the Kyoto Protocol. Much of this funding is directed at the non-renewable coal industry.

British Prime Minister, Tony Blair, stated that the Review demonstrated that scientific evidence of global warming was "overwhelming" and its consequences "disastrous" if the world failed to act.^[6]

"If the world is waiting for a calm, reasonable, carefully argued approach to climate change, Nick Stern and his team have produced one. They outline a feasible adjustment policy at tolerable cost beginning now. Sooner is much better." Robert M. Solow, Nobel Prize economist 1987^[7]

"The Stern report shows us, with utmost clarity, while allowing fully for all the uncertainties, what global warming is going to mean; and what can and should be done to reduce it. It provides numbers for the economic impact, and for the necessary economic policies. It deserves the widest circulation. I wish it the greatest possible impact. Governments have a clear and immediate duty to accept the challenge it represents." James Mirrlees, Nobel Prize economist 1996^[7]

“The stark prospects of climate change and its mounting economic and human costs are clearly brought out in this searching investigation. What is particularly striking is the identification of ways and means of sharply minimizing these penalties through acting right now, rather than waiting for our lives to be overrun by rapidly advancing adversities. The world would be foolish to neglect this strong but strictly time-bound practical message.” Amartya Sen, Nobel Prize economist 1998^[7]

“The Stern Review of the Economics of Climate Change provides the most thorough and rigorous analysis to date of the costs and risks of climate change, and the costs and risks of reducing emissions. It makes clear that the question is not whether we can afford to act, but whether we can afford not to act. To be sure, there are uncertainties, but what it makes clear is that the downside uncertainties—aggravated by the complex dynamics of long delays, complex interactions, and strong non-linearities—make a compelling case for action. And it provides a comprehensive agenda—one which is economically and politically feasible—behind which the entire world can unite in addressing this most important threat to our future well being.” Joseph Stiglitz, Nobel Prize economist 2001^[7]

"The Bank is committed to addressing the dangers of climate change and has made substantial progress in developing an Investment Framework for Clean Energy And Development. I very much welcome the Stern Review which provides a much needed critical economic analysis of the issues associated with climate change, and complements the recent IEA technology assessment and the World Bank's Clean Energy Investment Framework paper. The Bank is today working closely with its clients and partners to turn our analysis into practice, and will seek to substantially increase its own investment flows and those of the private sector. A crucial next step is to involve the private sector in the EIF. I am therefore pleased to support a partnership between the World Bank and the World Economic Forum and the World Business Council on Sustainable Development to stimulate private sector investment through the Energy Investment Framework. Chancellor Gordon Brown and I will co-host a conference early next year to launch the partnership. " Paul Wolfowitz, President of the World Bank^[7]

“The Stern Review of the Economics of Climate Change is a vital step forward in securing an effective global policy on climate change. Led by one of the world's top economists, the Stern Review shows convincingly that the benefits of early global action to mitigate climate change will be far greater than the costs. The report establishes realistic guidelines for action (based on long-term stabilization ceilings for greenhouse gases), core elements of an effective global policy (carbon pricing, technology policy, and removing barriers to change), and a framework for international cooperation that must include all regions of the world, both developed and developing. The Stern Review will play an important role in helping the world to agree on a sensible post-Kyoto policy.” Prof. Jeffrey D. Sachs, Director of the Earth Institute at Columbia University and Special Advisor to UN Secretary General Kofi Annan^[7]

“The Economics of Climate Change sends a very important and timely message: that the benefits of strong, early action on climate change outweigh the costs. That conclusion is one that the International Energy Agency fully endorses - notably in its World Energy Outlook 2006 to be published next week. Congratulations to Sir Nick Stern and his team for producing a landmark review which I have no doubt will strengthen the political will to change of governments around the world.” Claude Mandil, Executive Director of the International Energy Agency^[7]

“Climate change can impose enormous costs on mankind and particularly on the innocent poor people. The uncertainty that is used as an excuse not to act works both ways. If the impact is larger than expected it could be catastrophic. Sir Nick Sterns report is valuable as it shows the need to act now and that the costs of action are modest. One hopes it will spur to action those who are responsible for creating this threat.” Kirit Parikh, Member, Planning Commission, Government of India^[7]

“The scientific evidence of global warming is overwhelming but some commentators and lobby groups have continued to oppose offsetting actions on economic and competitiveness grounds. This comprehensive and authoritative report demolishes their arguments, explaining clearly the complex economics of climate change. It makes plain that we can cut emissions radically at a cost to the economy far less than the economic and human welfare costs which climate change could impose " Adair Turner, Former Director of UK Confederation of British Industry and Economic Advisor to Sustainable Development Commission^[7]

“When the history of the world's response to climate change is written, the Stern Review will be recognized as a turning point. Sir Nicholas and his team have provided important intellectual leadership as humanity engages with its greatest challenge. While the details will be debated, the main thrust of the report is clear and compelling — the expected benefits of tackling climate change far outweigh the expected costs.” Cameron Hepburn, Oxford University^[7]

"I support the Stern Review's conclusion that there is a strong economic case for taking early, effective action to reduce greenhouse gas emissions. This clearly has important implications for transport policy, which my own study is taking into account - sustainable economic growth cannot be achieved in any sector without tackling the effects of our actions on the environment". Sir Rod Eddington, Adviser to the UK Government on the long term links between transport and economic growth, and former Chief Executive of British Airways^[7]

[edit] Critical response

William Nordhaus, an economist who has done several studies on the economics of global warming, criticised the Review for its near-zero discount rate assumption^[8]:

The Review’s unambiguous conclusions about the need for extreme immediate action will not survive the substitution of discounting assumptions that are consistent with today’s market place. So the central questions about global-warming policy — how much, how fast, and how costly — remain open. The Review informs but does not answer these fundamental questions.

Yale environmental economist Robert O. Mendelsohn made similar criticisms in a BBC radio programme The Investigation. A number of other economists and scientists on the programme argued that the review's assumptions were far more pessimistic than those of most experts in the field, and that while claiming to be a review of current academic thinking the Stern review's conclusions were in fact at odds with the mainstream view.^[9]

Controversial environmental writer Bjørn Lomborg criticised the Stern Review in OpinionJournal^[10]:

Mr. Stern's core argument that the price of inaction would be extraordinary and the cost of action modest [...] falls apart when one actually reads the 700-page tome. Despite using many good references, the Stern Review on the Economics of Climate Change is selective and its conclusion flawed. Its fear-mongering arguments have been sensationalized, which is ultimately only likely to make the world worse off.

Professor Bill Mcguire of Benfield UCL Hazard Research Centre said that Stern may have greatly underestimated the effects of global warming. ^[5]

Martin Livermore, of the Scientific Alliance (a British non-profit organisation), said that "climate is not driven primarily by human use of fossil fuels" and that the money to be spent is unlikely to have much effect: it would be better spent on the world's poor.^{[citation needed]}

The Confederation of British Industries, the British Chambers of Commerce pointed out the dangers to business of additional taxation.^{[citation needed]}

Ruth Lea, Director of the Centre for Policy Studies, questions if there is scientific consensus about global warming. She alleges that "authorities on climate science say that the climate system is far too complex for modest reductions in one of the thousands of factors involved in climate change (i.e., carbon emissions) to have a predictable effect in magnitude, or even direction." About economic models, upon which Stern relied for his projections, her experience was that forecasting just two or three years ahead was usually wrong. She described the problem of drawing conclusions from combining scientific and economic models as ‘monumentally complex’. She doubted whether international cooperation was really possible. She concluded that she thought that this Review was designed to cloak the motives of a government that wanted some moral justification for increasing taxation on fuels.^[11]

Also from the Centre for Policy Studies, Nigel Lawson — who was Chancellor of the Exchequer in Margaret Thatcher's Conservative government in the 1980s — warned of what he called “eco-fundamentalism” in an 18-page report published just 2 days after the 700-page Stern Review.^[12]

The Business, a British magazine, reported on 2 November that, according to a leaked United Nations report obtained by the magazine, mitigating climate change could cost up to 5% of global gross domestic product ^[13]. Journalist Fraser Nelson argues that “if the Intergovernmental Panel on Climate Change figures [undermining Stern’s economic rationale] are right, they open up the possibility that the British proposals would cost as much as they save, making them redundant.”

Nigel Farage, leader of the UK Independence Party, disagreed there was scientific consensus on global warming. At best, he said, there is uncertainty and politicians world-wide are jumping on the ‘green’ bandwagon, but, if they want popular support, they’d better be sure that this is not simply the ‘new witchcraft’. ^[14].

Jerry Taylor of the Cato Institute, an American libertarian think-tank and climate sceptic organisation, criticized Stern's conclusion, taking a calculation by himself ^[15]:

Stern’s investment advice makes sense only if you think that warming will hammer GDP by 10% a year. You don’t gain much at all from emission cuts, however, if you think GDP will only drop by 5% a year if we do nothing. And if you think warming will only cost the global economy 2% of GDP every year, [...] then Stern’s investment advice is [sheer] lunacy.

David Brown and Leo Peskett of the Overseas Development Institute, a UK think-tank on international development, argued that the key proposals in relation to how to use forests to tackle climate change may prove difficult to implement ^[16]:

Radical ideas are needed not only at the level of understandings but also of forward strategies. The Stern Review is much stronger on the former than the latter, and leaves a lot of questions unanswered on implementation, particularly the downstream practicalities of bringing avoided deforestation into climate mitigation efforts.